What is the Sahm Rule Recession Indicator?
Benjamin Cowen, a well-known crypto analyst, has recently discussed the Sahm Rule Recession Indicator and its implications for the cryptocurrency market. This indicator, developed by economist Claudia Sahm, signals a potential recession when the three-month moving average of the national unemployment rate increases by 0.50 percentage points or more from its lowest point in the previous 12 months. The indicator reached 0.53 percentage points in July, as reported by the Federal Reserve Bank of St. Louis.
Implications for the Cryptocurrency Market
Cowen believes that this signal might suggest an upcoming shift in the cryptocurrency markets, specifically in the dominance of Bitcoin (BTC) compared to altcoins. According to him, a rising unemployment rate could lead to looser monetary policies by central banks, potentially resulting in a decrease in Bitcoin's market dominance.
Understanding Bitcoin Dominance
Bitcoin dominance refers to the ratio of Bitcoin's market capitalization to the overall market capitalization of all cryptocurrencies. When Bitcoin dominance is high, Bitcoin holds a larger share of the market compared to altcoins. Conversely, when dominance decreases, altcoins gain a larger market share.
Potential for Altcoins
Cowen suggests that if the Federal Reserve adopts a looser monetary policy, it could trigger a shift in capital towards altcoins. This shift may happen because investors often look for higher-risk investments, like altcoins, when monetary policy becomes more accommodating.
Labor Market Trends
Cowen also highlights the current state of the labor market to support his predictions. He notes that the ratio of job openings per unemployed worker has fallen to pre-pandemic levels, indicating potential economic slowdown. While central banks have not yet cut interest rates, Cowen believes they may do so if the economic situation worsens, further supporting altcoins' potential rise.
Conclusion
In summary, according to Benjamin Cowen, macroeconomic indicators such as the Sahm Rule Recession Indicator suggest that altcoins could gain ground against Bitcoin in the near future. This shift would be driven by looser monetary policies in response to economic conditions like rising unemployment rates.
